I understand Medicaid's five-year look back period and its transfer penalty. Most advice I see says that if money has been gifted, you should not apply for Medicaid until the five-year period has passed. What if the amount of money is only around $25,000? If the penalty period starts once you are approved to receive Medicaid, wouldn't it be better to apply ASAP so the penalty period starts? Or do you have to already be in a nursing home to be approved? The person in question owns nothing and his income is close to poverty level. This person could live at home for several more months with some in-home care, but he won't be able to wait five years. Should his family get his Medicaid application in ASAP?

The Medicaid penalty period does not work that way. A Medicaid penalty period will not begin until the person making the transfer has (1) moved to a nursing home, (2) spent down to the asset limit for Medicaid eligibility, (3) applied for Medicaid coverage, and (4) been approved for coverage but for the transfer. In other words, the penalty period does not begin until the nursing home resident is in the nursing home and out of funds. For example, if an individual in a state where the average  cost of care is $5,000 a month transfers $100,000 on April 1, 2013, moves to a nursing home on April 1, 2014, and spends down to Medicaid eligibility on April 1, 2015, that is when the 20-month penalty period will begin, and it will not end until December 1, 2016. For more information about Medicaid's asset transfer rules,click here. If you are considering applying for Medicaid, we recommend you consult with an elder law attorney.